Robinhood sued over investor's suicide

Robinhood Financial LLC contributed to the death of a 20-year-old student through "misleading communications" about his investments and "virtually nonexistent" customer service, according to a wrongful-death lawsuit filed in Santa Clara County Superior Court on Monday.

Alex Kearns, who wrongly thought he owed Robinhood $750,000 after making a risky investment, committed suicide in June, citing his perceived debt in a suicide letter, according to the suit filed by his parents. They are seeking unspecified damages after they accused Robinhood of preying on inexperienced investors and negligently handling their son's inquiries into a debt his family would eventually learn Kearns never owed.

Los Angeles attorney Benjamin Blake, who represents the Kearns, said not only did Robinhood send misleading notifications indicating Kearns owed hundreds of thousands of dollars, the company failed to respond to the student's telephone inquiries and should never have allowed him to engage in options trading worth hundreds of thousands of dollars.

"They should not have approved him to trade at that level of transaction," Blake said in a phone interview Monday. The Financial Industry Regulatory Authority "has a suitability requirement, Rule 2111, that requires all brokers including Robinhood to know and properly vet their customers, so they do not do things that would be dangerous to their financial health."

"However, given that he was in this trade, by sending him a notification that he owed a large sum of money that he didn't really owe, they caused him to believe he was indebted to them for a very large amount of money and he killed himself as a result, out of pure desperation," Blake said.

Following Kearns' death in June, Robinhood co-founders Vlad Tenev and Baiju Bhatt released a statement saying they were personally devastated by the tragedy, and laid out a plan to improve Robinhood's customer service experience.

"On Saturday, we learned that Alex Kearns, a Robinhood customer, died by suicide and left a note citing confusion with our product," the statement read. "We quickly reached out to Alex's family to share our condolences and offer to speak. We are personally devastated by this tragedy. ... Our team at Robinhood has been focused on identifying how we can improve Robinhood's customer experience, specifically around our option flows involving multi leg exercise and assignment."

Kearns believed an options trade he made through Robinhood had led to a $730,000 loss, according to the lawsuit. Robinhood sent Kearns an email notification around 3 a.m. requesting that he pay about $178,000 in a few days, Blake said. In reality, the loss was covered by other options in Kearns' account, according to the suit. Dan Kearns v. Robinhood LLC (Santa Clara Sup. Ct., filed Feb. 8, 2021).

Massachusetts' secretary of the commonwealth and chief financial regulator, William Galvin, filed a lawsuit in December, arguing that online broker-dealers such as Robinhood need greater regulation. Among other allegations, Galvin said Robinhood violated Massachusetts law by using "aggressive tactics to attract new, often inexperienced, investors," and failed to follow its own written supervisory procedures "regarding the approval of options trading."